Oct. 2015 - Diversified We Stand, Divided We Fall

Contents of this Issue

Navigation

Page 40 of 67

TH E M R EP O RT
| 39
O
R
I
G
I
NAT
I
O
N
S
E
R
V
I
C
I
N
G
A
NA
LY
T
I
C
S
S
E
C
O
N
DA
R
Y
M
A
R
K
E
T
ORIGINATION
THE LATEST
Mortgage Loan Application
Defects Head Up in July
While up over the month in July, defective
applications were down over the year and
remain well below their peak.
F
irst American Financial
Corporation's Loan
Application Defect Index
for July 2015 found the
mortgage loan defect rate rose 4.9
percent in July compared to June.
The Defect Index, which esti
-
mates the frequency of defects in
the information submitted in mort-
gage loan applications and reflects
them over time by geography and
by loan type, increased 4.9 percent
in July and decreased 5.6 percent
compared to this time last year. The
index is down 17.5 percent from the
high point of risk in September 2013.
"After seeing improvement in the
national mortgage loan defect trend
last month, the index has returned
to the trend of increasing risk that
we have observed since the begin
-
ning of 2015," said Mark Fleming,
chief economist at First American.
In recent months, the Defect
Index for refinance transactions
has increased dramatically. While
still 6.3 percent lower than a year
ago, its estimated defect incidence
is up 8.7 percent month-over-
month and up 7.1 percent over the
last three months. Meanwhile, the
adjustable-rate mortgages (ARM)
continue to have consistently
higher levels of application defect,
and fixed-rate mortgage defect
risk surged with an 8.4 percent
increase from the previous month.
According to First American, the
five states with the highest month-
over-month increase in defect fre
-
quency are: Oklahoma (+14 percent),
Hawaii (+13.1 percent), Louisiana (+10
percent), Texas (+10 percent), and
Colorado (+9.3 percent).
Among the top five states with
the highest month-over-month
decrease in defect frequency were:
Iowa (-11.4 percent), Massachusetts
(-5.4 percent), Alaska (-5.3 percent),
the District of Columbia (-4.7
percent), and West Virginia (-3.1
percent), the report found.
"What remains consistent from
last month is the concentration
of defect risk in the same hand
-
ful of key markets in the south,
particularly in Florida and Texas,
as well as in the Northeast and up-
per Midwest," Fleming said. "This
month, major metropolitan areas
in Florida and Texas continue to
produce defect frequency levels well
above the current national level."
criminal background check.
Additionally, in 2014, the
Ability to Repay rule was imple-
mented, which prohibited "stated
income" loan programs for most
mortgage loans.
Lenders have also taken steps
to reduce operational and misrep
-
resentation risk, including careful
watch of quality control results
for loan officer compensation and
underwriters, which are more
frequent and comprehensive than
prior to 2008, the report found.
Underwriting and loan origina
-
tion departments are now typi-
cally separated to allow for greater
underwriting independence, and
communication between loan of-
ficers and appraisers is limited.
Technology advancements such
as fraud risk tools and publicly
available housing information on
the Internet have also played a key
role in reducing risk, Fitch said.
Interthinx, Inc., a subsidiary
of First American Financial
Corporation and provider of
comprehensive risk mitigation
solutions for the financial ser
-
vices industry, released its annual
interactive Mortgage Fraud Risk
Report in June, which includes
data collected in 2014 from loan
applications processed by the
Interthinx FraudGUARD system.
The report found the 2014
Annual Mortgage Fraud Risk
Index value decreased by 4 percent
from 2013 to 100. This is a sign
that the gradually rising trend
observed in the previous four years
has come to a stop. Of the four
type-specific fraud risk indices
Interthinx tracks; including prop
-
erty valuation, identity, occupancy,
and employment/income; only
property valuation risk increased,
experiencing a rise of of 17 percent.
"After three years of increas
-
ing fraud risk, the 2014 data show
both an overall decrease and a shift
to more localized concentrations
of specific fraud types," said Jeff
Moyer, chief product and strategy
officer at First American Mortgage
Solutions. "In no way diminishing
the imperative for lenders, servicers
and investors to remain vigilant,
overall market stabilization does al
-
low our industry to focus on more
highly targeted strategies to address
specific fraud threats."